Is India In A Housing Bubble?

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 Chances are, if you are a homebuyer looking for your 'dream' home - whatever that means is beyond us - you will find what you really love is probably unaffordable. 

After a few such failed attempts at closing a deal, you might feel that despite our stalling economy and shrinking GDP growth etc., rising home prices indicate that we may be in a real estate bubble. Are we though? Let's figure it out together.

What Is A Housing Bubble?

You can call out a housing bubble when there is a significant surge in home prices that isn’t related to other economic fundamentals, like job markets, income or wealth. 

What Starts It?

A housing bubble can be caused by a variety of powerful forces like rising economic prosperity, low-interest rates, wider range of home loan offerings, and easy to access mortgage. Simply put, all these factors increase demand for housing, and as supply can't keep up with demand, home prices begin to increase. 

What Bursts It?

The top reasons that make a housing bubble pop include a downturn in the economy, black swan events like the pandemic, high levels of unemployment, and a rise in interest rates. All of these in effect take a hammer to housing demand, and as supply suddenly outstrips demand, home prices go into a free fall.

Where Do We Stand Today?

Housing prices are increasing, fuelled by sustainable demand on one side and runaway material costs on the other. (Steel, cement and other building material costs are at all time highs globally.) Which means the first part of the housing bubble definition stands true in our case. 

However, its the pandemic that's fuelled a lifestyle demand for home ownership. Add to that record low interest rates, very high construction costs, and prices begin to rise.

Yes, there has been some speculative home buying, by local investors looking at rental income, folks buying a second home to create more equity, as well as NRIs wanting to own a slice of hot markets. 

However, that doesn’t accurately reflect the vast majority of activity in the housing market, clearly meaning that there’s no housing bubble waiting to go 'pop' in India.

But, But, But...

With rapid urbanisation, India has such a shortage of standard housing supply, especially in the affordable housing segment, that homes are going to continue to come at a premium. So, should you wait for this non-existent bubble to burst to buy your home? 

Of course you can. This is a free country.